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If China stimulates its economy, this could lead to higher inflation in the United States

If China stimulates its economy, this could lead to higher inflation in the United States

Production at Chinese factories slowed unexpectedly in July.
China Visual Collection/Getty Images

China's attempts to restart its economy could lead to higher inflation in the United States, a new study says.

To stimulate the Chinese economy, policymakers are working to encourage investment in the manufacturing sector.

A manufacturing boom would push inflation significantly higher in the United States.

This is a machine translation of an article from our American colleagues at Business Insider. Automatically translated and verified by a real editor.

Chinese policymakers are trying to boost manufacturing activity to revive the declining economy. This could create new problems for US inflation expectations if these measures succeed.

A period of industrialization-fueled growth would lead to a “sugar rush” in the short term, he said Report from the Federal Reserve Bank of New York. “The main finding is that such a boom would put significant upward pressure on US inflation,” the report said.

In recent years, China has seen a marked redistribution of credit across the economy, with bank lending increasingly shifting from real estate to manufacturing. According to the report, the issuance of new “green loans” also increased sharply due to China The clean energy sector is gaining momentum.

There is a noticeable rotation in lending in China.

There is a noticeable rotation in lending in China.
Federal Reserve Bank of New York

The report said that new loans to China's manufacturing sector are expected to account for a third of total lending in 2023. If these investments pay off and the country sees a scenario in which credit growth rises to 12% over the next two years from the current 9.5%, this would impact… On prices in the United States, according to a report by the Federal Reserve Bank of New York.

“Our research shows that achieving this bullish scenario could lead to continued rise in US inflation over the next two years,” the report said, due to the importance of the Chinese economy to global manufacturing.

In other words, as demand increases in China due to the manufacturing boom, manufacturers' costs increase, which ultimately affects consumers.

“This finding contradicts what appears to be conventional wisdom that China's manufacturing-led expansion is good for the United States Deflationary “This argument ignores the pressures that increased Chinese production will put on global commodity markets and the broader industrial supply chain.”